Bloomberg News

AMR Pilots to Vote on Contract Paring Cuts in Bankruptcy

June 28, 2012

American Airlines unions won’t face an immediate court ruling on whether their contracts can be discarded after pilot leaders decided to let members vote on a proposal that pared concessions sought by the bankrupt carrier.

The Allied Pilots Association board agreed yesterday to hold the election, just before a deadline set by U.S. Bankruptcy Judge Sean Lane in New York. The action prompted Lane to delay a decision that had been set for tomorrow on whether to let American make wage and work-rule changes that would help carve $1.25 billion from annual labor spending, the airline said.

American’s 8,000 pilots will vote on a contract offer for the first time since 2003, when they accepted concessions to keep the AMR Corp. (AAMRQ:US) unit from seeking bankruptcy protection. If pilots accept the $315 million in annual cost reductions, American would move closer to its goal of emerging from court protection as an independent carrier by securing the cuts.

“We are confident our pilots will carefully consider the tentative agreement,” Bruce Hicks, an American spokesman, said in a statement. “This is a critical step in American’s restructuring.”

While five employee groups in the Transport Workers Union have approved givebacks, two other TWU groups held out. Neither the pilots nor flight attendants unions has accepted demands from AMR, which earlier asked Lane to cancel its existing agreements.

Delayed Decision

Lane will postpone his decision “on all the unions’ contracts” pending the pilot vote, Hicks said. ‘We must use the additional time wisely to reach agreements” with the TWU and the Association of Professional Flight Attendants, he said.

The judge won’t rule until Aug. 8 while pilots vote, according to a message to APA members from a spokesman, Tom Hoban, on the union’s website. The APA board agreed by a 9-7 vote to offer the proposal to rank-and-file balloting, according to a union e-mail.

In the background is US Airways (LCC:US) Group Inc., whose interest in a merger with AMR has led to provisional contract agreements with pilots, TWU and the APFA. AMR, which filed bankruptcy on Nov. 29, is resisting the overtures, though it has agreed to consider alternatives to its stand-alone plan. US Airways, based in Tempe, Arizona, hasn’t made a formal bid.

The AMR offer that will be sent to pilots includes a 15 percent reduction in the value of concessions originally sought by the airline. It also contains furlough protections, a 14.8 percent compounded pay raise over a six-year term and a 13.5 percent stake in the reorganized airline.

Small Jets

American would gain a more liberal policy to enter marketing agreements with other carriers, a new method of linking pay and aircraft flown, and the ability to use additional small jets.

A decision by Lane to void current contracts would let American change wages and work rules immediately and would put the unions’ bankruptcy claims at risk. The airline and labor groups still would have to negotiate for longer-term contracts that would remain in place once the carrier leaves court protection.

A pilots’ contract never has been abrogated by a U.S. bankruptcy court, said Hoban, the pilot spokesman.

The agreement should make APA the largest stakeholder in a restructured AMR and allow the union to influence decisions by the company’s creditors committee, APA President David Bates told members in a statement.

“The tentative agreement represents a form of insurance that limits our downside risk while ensuring that we have a significant voice in the direction of American Airlines going forward,” he said in a message on the union’s website.

Flight attendants and TWU-represented mechanics and aircraft stock clerks are set to resume talks with American next week.

The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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